Unlike every other crisis that the U.S. has faced over the last few decades, the novel coronavirus pandemic is an event that has at least impacted every American to a conspicuous degree. Clearly, though, some people have suffered more than others. It’s the same principle with the economy, as retail stocks have generally absorbed the brunt of the damage. Nevertheless, not every name has suffered consequences.
Although it sounds a bit callous, the reality is that while one retail subsegment might consider an event to be a catastrophe, another may consider it to be an opportunity. In other words, some retail stocks may benefit from the so-called new normal. In an email to InvestorPlace, Thomas Gilbert Associate Professor, Finance & Business Economics Michael G. Foster School of Business University of Washington, answered our inquiry regarding what the future may hold after the coronavirus:
“My sense is that innovation is increasing and will increase rapidly in all domains touching ‘remote, distance, cyber, virtual, artificial, automated, etc.’ Online retailing was only 10% of total retailing prior to the virus and I would not be surprised if the new normal will be far far higher, like 50%.”
Professor Gilbert further asserts that the “goal for these companies is to remove human interventions” across multiple functions, such as supply chains. Presumably, according to his thesis, retail stocks of companies that adjust to present realities will have greater probabilities of success.
Throughout, I’ll aim to explore retail stocks that are currently profiting from social distancing. Much of the discussion will center on retail-related companies that are shifting their business paradigm to accommodate to the new normal. These stand out as some of the best stocks to buy in retail right now:
- Amazon (NASDAQ:AMZN)
- Wayfair (NYSE:W)
- Etsy (NASDAQ:ETSY)
- Shopify (NYSE:SHOP)
- Home Depot (NYSE:HD)
- Kroger (NYSE:KR)
- Target (NYSE:TGT)
- Best Buy (NYSE:BBY)
- Domino’s Pizza (NYSE:DPZ)
As I’ve noted in the past, you’ll want to be careful with these retail stocks, even the stable ones. Because of the many unknowns involving the coronavirus, taking a measured approach with your investment strategies will allow you to advantage future sizable dips.
Best Online Retail Stocks to Buy: Amazon (AMZN)
If we’re going to talk about retail stocks thriving in the era of social distancing, you must put Amazon at the top of the list. Frankly, if I were running a conspiracy theory website, I would propose that CEO Jeff Bezos knew ahead of time about the coronavirus, of course after a lengthy discussion with the Illuminati.
All joking aside, AMZN stock is one of the rare investments that you can have long-term confidence in, regardless of market or economic conditions. Essentially, Amazon was practicing social distancing before it became a thing. As individual states imposed shelter-in-place orders during the initial phase of the outbreak, Amazon had a hostage audience. Those who hadn’t tried e-commerce now were forced to.
While it’s true that many states have either reopened or are planning to, most Americans favor shelter-in-place orders. With so many consumers having understandable health concerns, Amazon is now even more relevant. That’s a huge plus for AMZN stock.
If you’ve followed my work over the past few weeks, you’ll know that I’m skeptical of a V-shaped economic recovery. As you know, for the week ending April 25, 3.8 million workers filed for unemployment benefits. Over a six-week period, 30 million workers made initial jobless claims.
On paper, this doesn’t bode well at all for retail stocks. And you got to figure that it’s especially bad for online furniture and home goods specialist Wayfair. When Covid-19 first made a significant impact to the U.S., W stock acted reasonably: it tanked. But since the back half of March, Wayfair pulled off one of the most remarkable recoveries in recent memory.
Truly, this is what a V-shaped recovery looks like!
Interestingly, the explanation is that most states deemed brick-and-mortar furniture stores as non-essential services. Combined with millions in quarantine, consumers shifted their purchases online, which clearly boosted W stock.
However, I must offer a word of caution. I don’t think this catalyst will last, especially if unemployment hits business and managerial services. However, should a second wave of coronavirus — or any other disease — strike again, W stock is a name to consider.
Another big winner among retail stocks is online arts and crafts merchant place Etsy. In a pandemic or economic crisis, I would understand why certain retail segments, such as grocery stores or manufacturers of cleaning products would outperform. But arts and crafts? You’d think that most consumers would file this under non-essential, discretionary purchases. Yet ETSY stock — despite being incredibly choppy — has skyrocketed so far this year.
Although initially perplexing, Wayfair’s incredible success provides an important clue to Etsy’s prominence. Believe it or not, physical arts and crafts stores are still popular; hence, the thriving business of Hobby Lobby prior to the Covid-19 pandemic. But shelter-in-place orders killed commerce, which is why Hobby Lobby has attempted to quietly reopen stores.
This eagerness to reopen suggests viable demand for arts and crafts. While the coronavirus disrupted the physical players in the space, it opened opportunities for Etsy. In that context, the rise of ETSY stock isn’t surprising.
As with other retail stocks that have benefited from the coronavirus, be careful here. Should a significant dip occur, though, you may want to consider a position. It may take some time before the consumer feels comfortable in physical retail establishments.
For full transparency, I have not been the biggest supporter of Shopify. Especially at a price tag above $600, I do not recommend jumping aboard SHOP stock. At the same time, I would be remiss in failing to point out that for Shopify, the coronavirus has so far been a nothing burger, as the kids like to say.
Similar to the narrative driving the last two retail stocks I mentioned, Shopify was an immediate beneficiary to the quarantines. Just by the numbers, most of the U.S. economy depends on consumer spending. Apparently, we are all too happy to oblige, given the tremendous boost in SHOP stock. With physical retail out of commission for several weeks — and perhaps for at least several more weeks — Shopify grew legs.
Will this last? Again, I’m skeptical. As the Wall Street Journal points out, Covid-19 prompted the steepest drop in consumer spending in modern history. So, don’t buy SHOP stock right now.
However, one counterargument is that mental health pressures will have increased due to the forced quarantines. Retail therapy will offer one coping mechanism, so don’t dismiss Shopify altogether.
Home Depot (HD)
During this quarantine, grocery stores and big-box retailers — which I’ll soon discuss below — received much love and are often touted as some of the best stocks to buy right now. However, it’s important to realize that hardware stores like Home Depot are just as vital during emergencies. As you know, Murphy’s law is a cruel beast. Home emergencies don’t quarantine themselves, even if society does. Therefore, HD stock has been relatively resilient.
Although it’s hardly the sexiest name among retail stocks, Home Depot has really embraced this turmoil. Like prior natural disasters, Home Depot stores have stayed open to support Americans in need. Thus, it wasn’t surprising that state governments deemed these stores essential services.
Further, their online delivery service is convenient, intuitive and very effective. Just so you know, I’m speaking from personal experience. What I especially love about Home Depot is that they will deliver to you highly demanded goods, so long as they’re available. This online service, which has received free marketing during the pandemic, will add another layer to their business.
For me, HD stock is also a feel-good story. I can’t help but have a smile when I discuss this compelling brand.
One company that doesn’t put a smile on my face is Kroger. As I detailed in an April InvestorPlace story, Kroger’s online delivery service has a critical vulnerability. Long story short, there is no way to prevent your grocery deliverer from simply choosing not to pick out all your requested items yet stick you with the same flat-rate delivery fee.
Therefore, you could end up paying $10 for someone to deliver you a $3 toothbrush. Economically, it just doesn’t make sense. Plus, it adds unnecessary consumer-experience-related headwinds toward KR stock.
Still, I begrudgingly concede that Kroger has made the best out of this crisis. As our own Will Ashworth noted, management took a leadership role in helping business communities respond effectively to Covid-19. Moreover, Kroger has organically advertised its (flawed) online delivery service, along with curbside pickup options.
As the coronavirus steadily fades, the company will have likely converted many new consumers to these touchless options. Therefore, despite some glaring (though fixable) weaknesses, KR stock is a long-term buy among retail stocks.
One of the broader beneficiaries of the coronavirus pandemic have been big-box retailers. Among this category of retail stocks to buy during this crisis, I especially like Target. In my opinion, TGT stock enjoys strong demographic catalysts.
Featuring a consumer that has a higher average income level than Walmart (NYSE:WMT), Target is more resilient toward economic pressure. At the same time, it’s not membership driven like Costco (NASDAQ:COST), allowing TGT to capture more spontaneous demand.
But where I think Target really sets itself apart is in management’s efforts to consistently innovate. First, they offered charging stations for electric vehicles, inviting more revenue-making opportunities. Next, the company began experimenting with curbside delivery, a feature that the coronavirus organically advertised.
For those that love shopping at Target but don’t want to deal with people, the big-box retailer has ramped up its ship-from-store deliveries. I tried it out and I was impressed with the quickness of its service. As a holistic retail investment, I’ve got to give credit where it’s due for TGT stock.
Best Buy (BBY)
Clearly, the pandemic has negatively impacted retail stocks levered toward discretionary purchases. Given this environment, it’s not terribly surprising that Best Buy encountered turbulent waters in 2020. Currently, BBY stock is down on a year-to-date basis. However, I would argue that the underlying company has mitigated the damage due to its heavy advertisement of its curbside pickup option.
While selling digital devices and accessories doesn’t particularly ring true as an essential service, it actually is. As stay-at-home orders became the rule rather than the exception, several workers likely found themselves needing to upgrade their hardware. Further, many folks who are fortunate to have a steady paycheck come in probably got bored out of their minds.
And don’t forget that Best Buy isn’t all about electronics. With Sears (OTCMKTS:SHLDQ) basically dead, that leaves the appliance business footprint, which is critical, open for the taking. Combined with Best Buy’s alternative delivery push, BBY stock is better positioned than most for an eventual recovery.
Domino’s Pizza (DPZ)
More related to the food segment of the broader retail category, Domino’s Pizza nevertheless deserves mention in this list of retail stocks because of management’s long-term strategies and tactical acumen. As the coronavirus spiked demand for pizza deliveries, Domino’s responded with aplomb. In addition to hiring many delivery drivers, the company turned to fintech solutions to help manage their tips and earnings.
It’s advanced, relevant thinking like that which has contributed to DPZ stock thriving during quarantine.
Furthermore, Domino’s has mastered the art of the turnaround. Over years, the company became too complacent, with the brand becoming associated with a poor product. However, the leadership team pushed for a remarkable rejuvenation, which is still holding strong today.
Therefore, investors have confidence in DPZ stock as the past efforts were clearly not a one-trick pony.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.